Growth rate set to blaze soon

MK Venu & Shaji Vikraman, TNNJul 30, 2007, 03.55am IST

NEW DELHI: Double-digit growth is no longer the preserve of China or some small oil economies. India's growth rate for 2006-07 is likely to be revised upwards from the current estimate of 9.4% to almost 10%. This is because growth has been more robust than estimated in both agriculture and manufacturing, according to highly-placed government sources.

What would this mean for this year's GDP growth? Since the base for comparison has become larger, one could argue that this year's growth would be lower. But that is an arithmetic view of growth. The economic factors that drove growth to the touching distance of 10% last fiscal could sustain the momentum this year, too, to keep the growth rate above 9%, according to senior economists in the government.

That's not all. The economy's managers can take heart. If containing inflation at a yearly average of 5.4% was a creditable achievement when growth was estimated at 9.4%, the same task seems even more creditable when it turns out that growth was 10%. Looking forward, the central bank could consider relaxing its tight grip on monetary expansion a bit, considering that real expansion could be larger than what it has been bargaining for.

The 2006-07 growth rate in the agricultural sector is turning out to be higher than 2.7%, as estimated by the Central Statistical Organisation earlier. The revised growth rate in the sector could be 4% or more.

Similarly, the manufacturing growth rate will be higher than the estimated 12.3%. The combined effect of these two factors could take GDP growth up in the range of 9.8-9.9%, sources said. The higher agriculture output will result mainly from an upward revision in the kharif output by about 4 million tonnes during the fiscal. The rabi output, too, has been estimated to be higher than anticipated.

The GDP had expanded by 9% in 2005-06 and 7.5% in 2004-05. Per capita income has grown by 8.4% during the period under review as against 7.4% growth in the previous year, as per the CSO data.

While releasing the growth figures for 2006-07, the finance minister had remarked, "The time has come to shed lingering doubts about the sustainability of high growth and scepticism about the shift to a higher growth trajectory."

If indeed the growth rate is revised to about 9.8-9.9%, the base effect could be somewhat daunting for fiscal 2007-08. The question is if a near-10% growth can be sustained on the back of a similar rate of growth the previous year. Economists say growth in 2007-08 will reflect recent attempts by the RBI and government to tighten money supply by hiking interest rates.

A deliberate policy to somewhat cool down the economy may marginally decelerate the growth rate, even though we are in the middle of a new investment cycle. The chairman of prime minister's economic advisory council C Rangarajan is fairly confident India is now experiencing an investment-driven rather than consumption-driven growth. This is the one critical factor that might deliver a consistent GDP growth of 9%-plus for another few years, officials believe.